Shares of insurance technology company Lemonade (LMND 26.78%) dropped 14% in July, according to data provided by S&P Global Market Intelligence. There wasn't any significant news directly related to the company, but the descent started after home sales data were released on July 23, and home insurance is a big part of Lemonade's business today. However, it dispelled those worries with a fantastic second-quarter report.

The housing market is still sour

Lemonade is a digital insurance company that sells insurance online, mostly through chatbots. It uses artificial intelligence (AI) and machine learning throughout its business, and its algorithms determine everything from policy pricing to regional marketing spend.

It's only a decade old, but it's already made a strong mark on the industry, expanding its platform to cover most kinds of insurance and reaching most of the U.S. population. It's growing rapidly as customers enjoy the concept of being able to file a claim online and have it approved within minutes instead of needing to wait on hold for an insurance agent to answer their calls.

Two people on the patio of a house and a third using a tablet.

Image source: Getty Images.

Lemonade's original product was renters insurance, and renters and homeowners insurance are still the company's main products, accounting for about half of total in-force premium (IFP).

Home sales data released in July from the National Association of Realtors showed that home sales hit a record high of $435,300 in June, up 2% from the year before, and pending home sales fell 0.8% from May. Experts were expecting 0.2%. People are holding off on buying homes, and the market was concerned about Lemonade's growth prospects.

Sweetening the deal

Lemonade released second-quarter earnings on Tuesday morning, and they were phenomenal, beating expectations across the board. IFP increased 29% year over year to over $1 billion, and total customer count increased 24% to nearly 2.7 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss and net loss both contracted year over year, and the trailing-12-month loss ratio improved by 3 percentage points sequentially. Home-related loss ratio, a metric associated with its oldest product, fell to 60%, demonstrating that its algorithms produce better results over time.

Management raised guidance for the year, and it reiterated that it expects to be profitable on an adjusted EBITDA basis before the end of 2026.

Lemonade stock soared on the news, and it's up 31% in one day as of this writing. It's likely to stabilize over the next few days, but it looks like it's finally becoming clear to the market that Lemonade is the future of insurance, and at the current price, it still looks like a bargain.